Chinese hinterlands may solve cotton glut

Rural residents of China may hold the key to solving the problem of softening world demand for textile and apparel products — and, by extension, the world's oversupply of cotton and man-made fiber.

We've all heard the calculations. If every consumer in China would buy just one _____ (fill in the blank), then the world's glut of whatever you put in the blank would be over. But that may especially be true for residents of China's interior provinces.

China now supplies one-third of all U.S. imports, an “astounding” development, according to Bob Antoshak, president of Globecot, Inc. Part of that is due to China's ramping up of its manufacturing capacity in recent years, but it's also due to weak domestic demand.

“Buying power in China currently is segmented around the coast and certain big cities, but buying power in the inner part of the country is still pretty weak,” Antoshak told participants at the 18th annual Engineered Fiber Selection System Conference in Memphis, Tenn.

“If rural consumers, who make up the bulk of the population, were to get some buying power, domestic consumption of apparel in China would really soar. At the same time, home textile sales would be important based on continued expansion of housing in rural areas.”

Consumers are beginning to enjoy more buying power in China, said Antoshak, whose Nashville, Tenn.-based company is involved in several joint ventures there. “It has a ways to go, but there's definitely buying power. It's a different situation. Now we're talking about a country that's consuming for its own market instead of for an export market.”

Antoshak used historical data to help explain some of the changing directions in trade and sourcing of textile and apparel products at the EFS conference.

Based on historical evidence, the world made only about 1.4 million tons of textiles in 1770. That number changed little until 1950 when it jumped to 9.94 million tons. By the year 2000, annual consumption of textile products had risen to 48.95 billion tons.

“This huge run-up that occurred from the 1950s on, basically after World War II, is truly astounding,” he said. “There are many reasons — technology, buying power, the world putting itself back on its feet after the second World War.”

The problem for clothing manufacturers and their suppliers is that, after decades of explosive growth, the rate of increase in worldwide textile consumption has begun to slow.

“We're not suggesting that it's negative growth or that the worldwide textile industry is going to be collapsing,” he noted. “What we're suggesting is that, statistically speaking on a global basis, the rate of growth in textile consumption is slowing.”

Total consumption, which grew by more than 4 percent annually between 1950 and 1960, rose by slightly less than 4 percent in the 1960s, a little more than 3 percent in the 1970s, 2.5 percent in the 1980s; and 2 percent in the 1990s. Per capita consumption mirrored that pattern.

“The explosive growth right at the end of World War II (came) when there was a lot of excess production. That's less the case now, and part of the reason is the elimination of the Multi-Fiber Arrangement.”

Globecot recently completed a forecast that indicates Chinese consumers could nearly triple per capita expenditures on apparel and accessories by 2015. Urban consumers will continue to provide most of the growth, but rural buying will also make gains.

“We're very bullish on their ability to grow over time,” said Antoshak. “We see them as a key market going forward.”

Historical patterns in textile manufacturing — the perpetual search for lower-cost labor for the mills — will begin to catch up with the Chinese by the end of this decade, according to Antoshak.

“China will be strong in the textile and export business probably out to the end of this decade and maybe into the next,” he said. “Then two things will begin to occur: One is that new competitors that emerge will overtake them in the export market. I'm thinking about places like Vietnam, Cambodia and perhaps Laos.

“At the same time, China will become a greater importer of textiles. But more importantly, they will become a net importer, in time, of apparel. Understanding their economy and the dynamics of it, there is potential for China to become this enormous, consuming powerhouse. From the prospective of the U.S. grower, there will be a demand for his products.”

Increasingly, said Antoshak, the Chinese will outgrow their textile industry. “The textile industry is a stepping stone industry. They'll be making cars soon and then airplanes. And their consumption patterns will change, as well.”

Closer to home, Antoshak questioned whether the recent filings for safeguard provisions to protect the U.S. textile industry against the onslaught of Chinese exports will have the desired effect.

“From a practical standpoint, these safeguard quotas that the U.S. industry is actively pursuing have wonderful political impact, but you have to ask yourself how much market impact will they have?”

Chinese exporters in the past were “very comfortable” going through third countries to get their products out to the world. The safeguards now, said Antoshak, are scattering shipments again.

“Over the next few months it will be critical to see what happens to countries like Korea. In a period of two months, Korea lost a third of their exports to the world. Are their exports going to go back up again over the next few months?”